How Digit Made The Path to Saving a Simple Text Message Away
When Ethan Bloch was 15 years old, he lost his life savings. A precocious teen at the time, he’d invested the money given to him for his bar mitzvah in stock online and tripled its worth to $21,000. Then the dot-com bubble burst and he was left with nothing. “If you’re going to lose your entire net worth, 15 is a good age to do it,” says Bloch, founder of the automated savings plan, Digit.
Bloch, who graduated college with a degree in finance in 2008 – precisely at the peak of the financial crisis – is of the generation of millennials hesitant to put all their faith in big banks. Since his early teen investing days, Bloch has been fascinated with studying and understanding financial behavior. After starting and selling a marketing company for $4.5 million by the age of 26, Bloch knew he wanted to explore the world of finance and technology for young consumers like himself.
What he learned: Adults under the age of 35 have a savings rate of negative 2 percent. What’s more, as much as three-quarters of the U.S. adult population lives paycheck-to-paycheck, says Bloch. In other words: people simply aren’t saving. In 2013, Bloch launched Digit, which tracks users’ spending patterns and income, making small automatic transfers to a separate account for them. “We started with savings because it is the cornerstone of financial health,” he says. “Could we get people trusting a machine about when and where they could save?”
When Bloch is talking about a “machine,” what he’s really referring to is the simple text messaging feature on cell phones. While most fintech startups launch in the form of an app you can download and use on your smartphone, Digit operates and communicates with users entirely though text messaging. “Finance should melt into the background of our lives,” says Bloch. “Texting was a natural way to make it feel like a financial buddy.”
Sign up for Digit and the service automatically learns your spending and income patterns based on a set of complex algorithms applied to your spending history and status. Digit users save an average of three to five percent of their annual income through the service, says Bloch.
For Travis Smith, a digital designer based in Chicago, Digit not only offered an alternative to his regular savings account, it has also kept him well-informed about his financial status. “There’s nothing easier than getting a text message every morning that says: ‘This is your bank balance,’’’ says Smith. “It makes me aware and more comfortable with what’s going on with my finances.”
For Smith, 36, who has two kids at home, knowing that Digit is automatically saving money on his behalf – without him having to initiate each transaction – creates an added sense of security and cushioning. “I’m one of those people who, when you see your money in your account, you think ‘That’s how much I have to spend,’” he says. “Now [Digit] is in the background, moving money without my having to think about it.”
With a solid user base saving more than $100 million annually, Digit is exploring ways to expand its service. While the texting feature is like a teller or financial advisor reaching out with updates daily, the startup is now developing an app, which Bloch likens to a bank users can go into to get a more thorough rundown of their account.
Like most financial technology, Digit has had its fair share of challenges. “In financial technology, in order to build the product so that it can work, you have to work with the incumbents, who you – by definition – are competing with,” says Bloch. “The incumbents are also the gatekeepers.”
But thanks to FinLab, Bloch has had the opportunity to meet with regulators and bank executives to figure out a way to work with them in making the process more seamless. “FinLab and CFSI have given us an unparalleled opportunity to work with executives from the largest banks in the country, along with government and regulatory bodies,” says Bloch. “This access has been phenomenal as it has allowed Digit to be involved in conversations directly impacting the future of fintech.”